Beaten-down stocks are often tempting as an investment, particularly when they're blue chips. Quality always (eventually) shines through. Investors thinking about stepping into the Dow Jones Industrial Average's worst-performing components from July right now, however, may want to think twice about it -- and then decide not to.
These stocks are down for reasons bigger than just a little volatility, ill-timed bad luck, or knee-jerk reactions from investors. Now into the sixth month of COVID-19's invasion of the United States and the ninth month since it was first recognized as a deadly disease, it's starting to become clear some companies face headaches well beyond the temporary ones put in place by the coronavirus.
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Three losers of the DJIA
If you're wondering, the DJIA tickers in question are Intel (INTC -1.79%), Boeing (BA 0.01%), and Raytheon Technologies (RTX -0.04%) -- all well-founded stalwarts that will certainly be around years from now, but also all names that have been sold off for a reason. That is, their revival isn't exactly imminent.
Intel's setback was largely driven by another round of familiar bad news. It is experiencing more research and development delays that were partially prodded by the coronavirus outbreak this time around.
The tech company has been repeatedly plagued by problems with its 7-nanometer (nm) CPU foundry technology, while rival CPU maker Advanced Micro Devices already sells 7nm processors. It's still not clear when Intel might come to the market with a competing chip either, as the company warned yet again on its recent second-quarter conference call that its 7nm CPU timeline had been extended. COVID-19 made it tough to get much done on this front. That news alone was enough to upend the stock, yet just a few days later, news that now-former chief engineer Murthy Renduchintala would be leaving only fanned those bearish flames.
All told, Intel shares fell 20% in July, with investors perhaps now wondering if there's a far bigger fundamental flaw in how the company's been planning and managing product development. That's much tougher to fix than a mere retooling.
Boeing didn't slide nearly as much as Intel did, but its stock's 11% loss last month is hardly modest given the Dow's 19% gain for July.
The company's relatively new 737 MAX jets were once touted as game-changing. A couple of catastrophic crashes shortly after they went into service in 2019, however, forced most regulators of the world's airspace to ground the plane until its problems were solved. Boeing's engineers have seemingly made some measurable progress, with the FAA in 2020 nearing a renewed assessment of the aircraft's airworthiness.
A recertification may not be enough, though. Airlines are now experiencing weakened demand for air travel thanks to COVID-19, and it's not inconceivable many are still worried there could be something else wrong with the 737 MAX that's yet to be realized. Between the two headwinds, more than 350 orders for the aircraft were canceled during the first half of this year. There's no clarity as to when or even if those canceled orders will be replaced, either.
Finally, Raytheon's 10% tumble in July isn't harrowing, but it's certainly not dismissible.
To its credit, the company topped its second-quarter earnings and revenue estimates when the numbers were reported on Tuesday. The problem is those numbers were well down on year-over-year basis, reminding the market that the same weakening demand for Boeing's jets also means waning demand for related aircraft components that Raytheon produces.
Read between the lines
In some regards, being an investor in March was easy: Assume all companies are going to be hit hard. The late-February/early March sell-off was pretty indiscriminate, dragging most everything lower. In a similar sense, the rally from March's low to current levels was also a rather sweeping one, steering most stocks and most investment categories higher. It was difficult not to do well no matter how you played the market.
As July turns into August though, clarity is starting to bloom.
Take a closer look at the reasons these three names suffered last month while most other Dow Jones stocks didn't. Every company struggled when the coronavirus was new, including these three. Only certain companies will continue to struggle in the aftermath of the pandemic, though. Air travel looks like one of those industries set for prolonged turbulence. Even as COVID-19 seems to fade away, the public may remain worried about sitting in a confined space for so long with so many other people. Passage through an airport terminal isn't exactly a germ-free experience, either. The aircraft headwind could last a while. This is the outbreak's ripple effect.
As for Intel, the coronavirus didn't cause its problems, but it certainly exposed and exacerbated them. Its research and development process will get back to normal at some point in the near future, but Intel's "normal" isn't necessarily great. Its new leadership structure will require time to reset, but time is the one thing Intel doesn't really have to give.
It's not just Raytheon, Intel, and Boeing, though. Unlike most points between March and now, investors now know why they're bidding a stock up or sending it lower. It's not mere panic or fear of missing out. If a stock's down, it's probably down for a reason. It would be wise to start taking the market's hints instead of merely buying the dips and selling the rips. We're just not in that kind of volatile, easily reversed environment anymore.
